Airport and Airway Trust Fund Uncommitted Balance at Dangerously Low Level

Short term solution may be increased contribution from the General Fund of the US Treasury

On July 23, much of the Federal Aviation Administration’s (FAA) spending authority lapsed, along with the legal authority to collect aviation excise taxes and fees which support the Airport and Airway Trust Fund (AATF). Estimates are that between $25-30 million in taxes are going uncollected per day. This lapse will continue to put pressure on the already stressed AATF.

The AATF pays for the FAA’s entire Airport Improvement Program (AIP), Facilities & Equipment (F&E), and Research and Development (R&D) accounts as well as a portion of the FAA’s Operations account. The health of the AATF is typically judged by its uncommitted balance, or the level of funds in the AATF which are not already obligated by current or previous years’ spending.

In their FY2011 Budget, FAA predicted that the uncommitted balance at the end of FY2010 would be $1,431M. However, this estimate was based on a rather high estimate of expected tax receipts. FAA predicted that it would receive $11,798B in AATF taxes in FY2010. This is an 11% increase over FY2009. Such a significant increase in traffic, fares and other revenue drivers was highly unlikely given the prevailing economic conditions and capacity strategies of the airlines. In reality, AATF receipts totaled only $10.61B in FY2010. After factoring in the actual tax receipts and adjusting FAA’s estimated spending to actual spending in FY2010, it now appears that the AATF’s uncommitted balance was actually somewhere in the range of $500M at the end of FY2010. ACI-NA has argued that a “safe” level for the uncommitted balance is somewhere around $2B. This would prevent the FAA from running out of cash should there be another serious disruption in the air transportation system such as happened after the 9/11 attacks.

The AATF is funded by excise taxes and fees on air transportation of people and cargo. The largest contribution comes from the 7.5% ticket tax which is assessed on commercial airline tickets. Other receipts come from the segment fee, cargo waybill tax and taxes on commercial and general aviation fuel. However, due to the recession, receipts for all of these taxes have fallen in recent years. Fewer people are flying and the fares paid by people who do fly are significantly lower than in previous years.

Additionally, airlines have implemented dramatic service reductions since the fuel spike of 2007, cuts which have continued through the recession. This has reduced fuel tax receipts and segment fee revenues. On top of this, airlines have wholeheartedly embraced the concept of unbundled airfares. This moves costs which were once included in the base airfare to separate a la carte fees which are not subject to AATF excise taxes and therefore put a further stranglehold on the AATF. FY2010

FY2011 (CR/Est.) AATF Balance, Start of Fiscal Year $8,790 $9,428 Income Excise Tax Receipts $10,612 $12,493 Interest $195 $246 Other $97 $157 Total Income $10,904 $12,896 Spending Payments to Air Carriers (EAS) -$130 -$139 Ops (AATF Share) -$4,000 -$4,559 AIP -$3,283 -$3,515 R&D -$156 -$225 F&E -$2,697 -$3,071 Total Spending -$10,266 -$11,509 Total Balance, End of Year $9,428 $10,815 Total Commitments (Previous Years) -$8,927 -$9,068 Uncommitted Balance $501 $1,747

While the uncommitted balance at the end of FY2011 looks healthy, it again relies on an unrealistically high estimate of tax receipts in FY2011 of almost $12.5B. The latest data available from the US Treasury puts AATF tax receipts through June 2011 at $7.96B. If one projects that pace out for the rest of the fiscal year, it would result in collections of approximately $10.6B. This number is 15% below the estimated collections in the FY2011 budget and will also obviously be negatively impacted by the ongoing lapse in collection authority.

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